SWOT Analysis

Strengths, Weaknesses, Opportunities, Threats

• This framework helps assess a business's internal and external factors.

• Useful for strategic planning and identifying areas for improvement.

• To understand a business's current position.

Limitations:

• Subjectivity: SWOT analysis can be highly subjective. This can lead to biased or inaccurate assessments.   

• Lack of Prioritization: It doesn't inherently prioritize factors. All elements are listed, but not necessarily weighted by importance.

• Static Nature: It's a snapshot in time and doesn't always account for dynamic changes in the business environment. Not appropriate in very fast moving environments, where conditions change rapidly.

Porter's Five Forces

by Michael Porter

This framework very useful for understanding the competitive landscape of any business. It examines:

1. Competitive rivalry

2. Supplier power

3. Buyer power

4. Threat of substitution

5. Threat of new entry

Limitations:

• Industry-Centric: It primarily focuses on the industry and might not fully capture internal factors or unique firm-specific advantages. Less appropriate for companies that have very diversified business models.

• Static View: It provides a snapshot and may not reflect rapid changes in competitive dynamics.   

• Oversimplification: It can oversimplify complex industry structures.   

PESTEL Analysis

Political, Economic, Social, Technological, Environmental, Legal

This framework gives a broad view of the outside factors that can effect a business.

7 Powers

by Hamilton Helmer

This framework is a strategic analysis tool that focuses on identifying a company's sustainable competitive advantages, which he calls "powers." These powers allow a business to generate persistent differential returns (i.e., profits above the norm). 

1. Scale Economies:

• As a business grows, its unit costs decrease.

• Think: Walmart's massive size allows it to buy products in huge quantities, getting discounts from suppliers. This lets them sell those products at lower prices than smaller stores, attracting more customers.

2. Network Economies:

• The value of a product or service increases as more people use it.

• Think: Tik Tok or Instagram. The more people who use these platforms, the more content there is, and the more valuable they become to everyone. If your friends are on it, you want to be on it too.

3. Counter-Positioning:

• Adopting a superior business model that existing competitors cannot replicate due to fear of damaging their existing business.

• Think: Netflix (versus Blockbuster) who started by mailing DVDs and then switched to streaming, offering a subscription model with unlimited viewing.

4. Switching Costs:

• Customers face significant costs (time, money, effort) when switching to a competitor.

• Think: Apple. If you have an iPhone, Mac, and Apple Watch, switching to a different brand means losing all your synced data, apps, and familiarity. It's a hassle.

5. Branding:

• Creating a strong, recognizable brand that drives customer preference and loyalty.

• Think: Nike's brand is associated with high-quality athletic gear and celebrity endorsements, making people willing to pay a premium.

6. Cornered Resource:

• Having exclusive access to a valuable asset or resource.

• Think: A company with a unique patent or technology (e.g. Nvidia) or exclusive access to a rare mineral deposit (e.g. De Beers).

7. Process Power:

• Organizational capabilities and company culture which enable lower costs, and or superior product.

• Think: McDonald's perfected food preparation and service processes, allowing for consistent quality and speed across all its locations.

Limitations:

• Startups in Very Early Stages: In very early-stage startups, where the business model is still evolving, it might be too early to focus on building sustainable powers. The focus should be on product-market fit.

• Service based small businesses: Many service based small businesses, such as local plumbing companies, or local restaurants, will not be able to utilize many of the 7 powers. Their competative advantages are often based on location, and customer service.

• Rapidly Changing Industries: In industries with extremely rapid technological change, powers can erode quickly. Flexibility and adaptability might be more important than rigid adherence to a specific power.

• Short-Term Analysis: The 7 Powers framework is designed for long-term strategic analysis, not short-term tactical decisions.

• Non-Profit or Social Enterprises: While some powers might be applicable, the framework's focus on generating persistent differential returns might not be as relevant for organizations with non-financial objectives.